NCPA - National Center for Policy Analysis

BENDING THE PRODUCTIVITY CURVE: WHY AMERICA LEADS THE WORLD IN MEDICAL INNOVATION

November 23, 2009

The health care issues commonly considered most important today -- controlling costs and covering the uninsured -- arguably should be regarded as secondary to innovation, say Glen Whitman, an associate professor of economics at California State University, Northridge; and Raymond Raad, a resident in psychiatry at New York Presbyterian Hospital/Weill Cornell Medical Center.                               

To test their theory, Whitman and Raad examined four categories of innovation -- basic science, diagnostics, therapeutics, and business models.  They found:

  • In the first three of the four general categories examined, the United States has contributed more than any other country, and in some cases, more than all other countries combined.
  • In the last category, business models, the researchers lack the data to say whether the United States has been more or less innovative than other nations; innovation in this area appears weak across all nations.

In general, Americans tend to receive more new treatments and pay more for them -- a fact that is usually regarded as a fault of the American system.  That interpretation, if not entirely wrong, is at least incomplete, say Whitman and Raad:

  • Rapid adoption and extensive use of new treatments and technologies create an incentive to develop those techniques in the first place.
  • When the United States subsidizes medical innovation, the whole world benefits; that is a virtue of the American system that is not reflected in comparative life expectancy and mortality statistics.
  • Inasmuch as a medical treatment must first be invented before its costs can be reduced and its use extended to everyone, medical innovation remains critical.

Policymakers should consider the impact of reform proposals on innovation.  For example, proposals that increase spending on diagnostics and therapeutics could encourage such innovation.  Expanding price controls, government health care programs, and health insurance regulation, on the other hand, could hinder America's ability to innovate, say Whitman and Raad.

Source: Glen Whitman and Raymond Raad, "Bending the Productivity Curve: Why America Leads the World in Medical Innovation," Cato Institute, November 18, 2009.

For text:

http://www.cato.org/pubs/pas/pa654.pdf 

 

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